Local telcos are keeping their strategies under wraps, after the regulator dropped a surprise proposed interconnect rate cut on the market yesterday. However, analysts say there is unlikely to be much resistance to the regulations.
The Independent Communications Authority of SA (ICASA) detailed a new set of draft regulations governing the wholesale termination rate that the operators charge each other to land calls on networks.
If published, ICASA's new rates will take effect in July this year, with mobile operators expected to make yet another cut to 65c per minute in that month, following one in March which hacked rates from R1.25 to 89c.
In the middle of next year, they will be called to drop the rate to 50c, and again to 40c by 2012. The new proposal is a far cry from an agreement between the operators and the Department of Communications last year, which would have seen rates cut to 80c by 2012.
En passant
MTN, Vodacom, Cell C and Telkom have all decided to play it safe on their response to the regulator's plans, and the regulator is now likely waiting with baited breath to see how the operators respond to the new proposal.
regulatory experts to now look over the documentation published by ICASA, and will respond to the terms of the regulations in their written submissions.
“Wholesale call termination is a complex issue and MTN expects that the draft regulations will contain elements that require legal interpretation and analysis of its regulatory and economic impact. Once MTN has reviewed the full set of documents, it will compile its response and file the required submission on the due date,” says Robert Madzonga, chief corporate services officer at MTN SA.
Vodacom and Telkom released similar statements, saying only that they would participate in the public hearings expected to take place at the beginning of June.
Cell C's executive head of regulatory affairs, Nadia Bulbulia, says the company is interested in the methodology that ICASA used to determine the rates, and will look into how it will impact the entire industry.
Checkmate?
Despite the ominous responses from the telcos, analysts believe they are unlikely to heavily contest ICASA's new proposal. “I do believe there will be pushback from the operators, but having said that, they will most likely implement the new rates,” says Steven Ambrose, MD of World Wide Worx Strategy.
Ambrose has long believed the revenue received by the operators on interconnect has not actually been as high as many of them have claimed. He says the new rates proposed by ICASA are unlikely to make a significant impact on the mobile operators' business models.
“If there was no interconnect rate at all, they will still make money,” he adds. Ambrose believes ICASA's move will really benefit the consumer, although he says it will take some time for the rates to affect the retail costs.
The operators fought a bitter battle last year with the DOC and the Parliamentary Portfolio Committee on Communications to prevent an instant rate cut to 60c.
Chris Gilmour, Absa Investment analyst, says that, despite that battle, the operators know they would be shooting themselves in the foot if they contest these regulations too vehemently. “There are far more elegant ways the operators can make up for the losses of interconnect,” he notes.
He says the mobile market is already mature and growth is unlikely to come from new sign-ups. Rather, operators are looking at getting more people to make more calls, which will increase average revenue per user.
All the operators have already started doing this, and these innovative products may counter a drop in interconnect.
ICASA will receive the written submissions of the operators on 2 June and will then hear publically their concerns a week later.
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